Archive - Mar 1, 2012

Europe is broke. Completely and totally broke. The whole notion of bailouts and debt swaps is pointless here, you’re talking about systemic failure due to the entire financial system being overleveraged and based on spending patterns that are unsustainable in any way.

Among the many factors responsible for the jump in WTI to just shy of $109 over the past hour, and Brent to new records in various currencies, is the following news reported so far only by Iranian PressTV: "An explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awamiyah in the kingdom’s oil-rich Eastern Province." And now back to your regularly scheduled deflation.

Social Media Taking a Page Out of George W. Bush’s Playbook on “Free Speech Zones”

I've seen a lot of chatter lately about the interview with Andrew Schiff in which he complained about how hard it was to get by on just $350,000 a year. The "smaller bonuses" environment on Wall Street is hitting the well-off in ways that the middle class finds, shall we say, unsympathetic. There are, last time I checked, 1228 comments on this one story, pretty much all of which tell Mr. Schiff to get stuffed.

The market has decided not to wait for the ruinous aftermath of Stanley Fischer's plan to print money and buy stocks to come to fruition. It is, in fact, frontrunning it by buying that which can not be printed, and is completely oblivious of such anachronisms as cash flows or dividends that will soon be thoroughly debased. EUR Brent just took out all time highs. European inflation to follow.

All hail Jamius Swindler...

We were speechless when we read this from Bloomberg...

Back in September, before the transition from then ECB head J.C. Trichet to current Goldman plant and uber printer Mario Draghi we asked whether "Trichet will disgrace his already discredited central banker career by pushing a rate cut before he is swept out of the corner office by Mario Draghi, or will the former Goldmanite Italian become the most hated man in Germany soon, after he proceeds to ease, even as Germany still experiences Chinese inflationary re-exports. The answer will be all too clear in just a few months." Sure enough, following a whopping €1 trillion in incremental liquidity released by the ECB in the three shorts months since Draghi's ascension on November 1, all under the guise that the ECB is not printing when it most certainly is, albeit "hidden" by the idiotic claim that it accepts collateral for said printing (what collateral - Italian and Spanish bonds, which will become worthless the second even more printing is required in a few short months? This is run time collateral that can be issued "just in time" to convert it to even more cash as UniCredit did again today), the answer is becoming clear. Slowly but surely the realization is dawning on Germany that while it was sleeping, perfectly confused by lies spoken in a soothing Italian accent that the ECB will not print, not only did Draghi reflate the ECB's balance sheet by an unprecedented amount in a very short time, in the process not only sending Brent in Euros to all time highs (wink, wink, inflation, as today's European CPI confirmed coming in at 2.7% or higher than estimated) but also putting the BUBA in jeopardy with nearly half a trillion in Eurosystem"receivables" which it will most likely never collect.

Despite groundless media reports that French president Sarkozy, who is up for reelection in April, is gaining on his challenger Hollande who has promised to undo virtually all the European fiscal pacts attained through blood, sweat, tears and countless contradictory headlines (more here), it seems that Sarkozys' appreciation by his fellow citizens has hit rock bottom. As AP reports, "Several hundred angry protesters have booed President Nicolas Sarkozy, forcing him to take refuge in a cafe protected by riot police as he campaigned in France's southwest Basque country." It appears that the European discontent is finally seeping rather aggressively into the core, and the political overhaul which many assume will take the Greek model of bloodless technocratic coups by banker appointed puppets may just not work too well elsewhere. In other news, the French now surrender to the French.

There’s a lot of talk right now, for example, about rising oil prices which have created uncomfortably high gasoline prices. In gold terms, however, gasoline prices are in a deflationary spiral. The chart below shows unleaded gasoline prices in grams of gold since January 1976. Priced in grams of gold, gasoline is near an all-time low. Buffett (and others) argue strongly that investors should be in stocks… that a company like Coca Cola or productive farmland is a better long-term investment than a useless hunk of metal.He’s probably right. Except that the useless hunk of metal isn’t really an investment. It’s an anti-currency… appropriate for those who want to sit out of the market and be in cash without having to be in cash.

Did channel stuffing expert AOL quietly merge with a Government Motors without anyone's knowledge? Because making record amounts of cars only to have them amortize rapidly in showrooms must be some New Normal definition of a recovery.

All this money sloshing around is nothing but kindling. This is enough to start one hell of a large inflationary fire, but probably not until we have a deflationary panic first – which will add even more kindling to the pile. The progression from the $1.5 billion Chrysler rescue to the current multi-trillion dollar worldwide financial support operations seems to parallel the march from the first US forestry service attempts to limit forest fires about a century ago to the far more sophisticated efforts possible today... Studies have shown that the onset of that catastrophe is almost totally unpredictable. By suppressing small fires, the forests approach an unstable state where the dead wood, resulting from the natural cycle of birth and death in the wild, is piled high, ready to explode into flames if the conditions are right. The central banks and other governmental authorities have piled the money so high that bubbles are popping up everywhere. With so many bubbles and so much kindling, volatility in price is a sure thing. As research has shown that the timing of these dramatic breakdowns, whether a forest fire, an earthquake, or a market crash cannot predicted, or mitigated as it runs its course, the time to control these crises is way before they start. The US Forestry Service knows that, please tell Bernanke!

Busy day for our friends from Goldman who are now turning quite bearish it appears following the two GDP cuts earlier.

Earlier we noted how Goldman cut their tracking forecast for Q1 GDP from 2.3% to 2.0% on weaker consumer spending data (which somehow resulted in a surge in consumer confidence: oh well, the US branch of the Chinese Department of Truth has to justify its budget somehow). Not even a full two hours later, the firm has just whacked its forecast for Q1 GDP again, this time on the major ISM miss. And this, ladies and gents, is ultra high frequency economics, where HFT machines push the market up and down without reason, and where this has an immediate impact on economic indicators, all changed around in real time.